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Why VMware is Acquiring Pioneering IT Financial Management Vendor, Digital Fuel

If you’ve heard the recent news that VMware has signed a definitive letter of intent to acquire Digital Fuel you might be asking yourself a simple question: Why? After all, isn’t VMware an infrastructure company? What’s it doing in the ITFM space?

Let me give you a little background and then tell you my perspective on why I think it’s a good move for VMware and our customers (and it’s not just because I’m the VP in charge of our virtualization and cloud management strategy and offerings).

The goal of IT has always been to support the business, to align IT efforts with business priorities, and to deliver maximum business value for IT spend. That hasn’t changed. What has changed is that cloud is making it possible for the first time for IT to truly deliver on that goal. How? Well, one critical way is that cloud now provides an external benchmark for the CIO (and more importantly, his or her business counterparts) to compare the cost and value of internally provided IT services. Whether it’s comparing the cost of a unit of compute capacity for Dev/Test, the cost of provisioning a mailbox for a new employee, or the cost of a CRM solution for your entire sales force, the public cloud provides a rate card that serves as a benchmark against which CIOs are being held to account by CFOs and even CEOs.

But here’s a fun paradox – even as CIOs are increasing their level of virtualization and building out their private cloud capabilities to compete with the agility and cost of public cloud services, it’s getting more and more difficult to understand the true cost of the services they provide. Why? It has to do with the incredibly dynamic nature of virtualization and private cloud. With applications being moved from one VM to another, VMs in turn being moved from one host to another, and capacity and usage being spun up and spun down constantly, the ability to capture and showback the resources and services consumed by your LOBs is incredibly and increasingly difficult.

So how do you defend yourself and the value you deliver in comparison with an external benchmark?  You need the numbers—credible, supportable numbers. Back of the envelope calculations, out of date Excel spreadsheets, and gut feel only get you so far when facing a CFO who says “Here’s what Amazon says they can do it for. Can you do better?”

To answer this question without breaking into a cold sweat requires deep financial visibility into cost structures, the ability to monitor and deliver on SLAs, and a framework for making intelligent sourcing decisions. The fact is, today, most IT organizations I talk to have rudimentary, if any, capabilities in these areas. 

This is why VMware is acquiring Digital Fuel. It’s about providing our customers with the deep visibility and the right measurement tools they need to manage IT in the right way. Specifically, I’m talking about the ability to measure the costs and SLAs associated with a particular IT service whether sourced internally through your private cloud or externally from a cloud or SaaS provider. So you can stand up and have a fact-based, numbers-driven discussion with your CFO or CEO. And the combination of VMware and Digital Fuel is a perfect fit for this. The acquisition brings together our deep insight into the dynamically changing virtual infrastructure which is the very foundation for cloud computing, as well as our growing portfolio of application and end user computing solutions that are re-defining how IT is enabling your business processes. The combination of these solutions with Digital Fuel’s pioneering capabilities gives you the unprecedented ability to manage every aspect of your services from a financial – and business – perspective. 

And it’s not just about managing costs and SLAs. You have to manage your vendors as well.  As you may know, vendors account for a significant part of the average IT budget – about 30%. In the cloud era, where your company’s business processes are driven by a complex combination of in-sourced, outsourced and cloud-sourced services, the SLAs you agree with the business are themselves dependent on those you agree with your vendors. Digital Fuel’s vendor management solution lets you compare different vendors and options to make the most cost-effective business choice. Plus it provides a control mechanism for your vendor agreements – making proactive governance of contractual commitments possible, and tying financial and other penalties to non-performance when necessary.

Sounds pretty good doesn’t it? But wait, there’s more! It’s about tracking the overall costs of delivering your services and driving them down over time while still delivering on agreed service levels. And putting into place some financial rigor around planning, budgeting and portfolio management to ensure your organization is delivering the right services at the right cost to the business going forward.

To net it all out, it’s about having that fact-based discussion with business stakeholders on the value IT provides for the budget it gets. Digital Fuel’s solutions provide the CIO with financial visibility and control, giving him or her the ability – through non-“Geek Speak” reports – to communicate back to business stakeholders in business language (dollars, euros, yen, etc.). This is the kind of dialog IT execs have been dying to have since the early days of the mainframe.

Without financial visibility and control there’s just no way IT can fully mature as an organization, no way the CIO can start running IT like a business. At the end of the day, Digital Fuel’s solutions give our customers the ability to manage IT as a business, measuring, managing and optimizing IT resources for maximum business impact.

Here’s a link to the press release.  Stay tuned for more updates and announcements via blog.

2 thoughts on “Why VMware is Acquiring Pioneering IT Financial Management Vendor, Digital Fuel

  1. Alan Rodger

    An excellent move, Ramin. This lifts VMware high in terms of value delivery within its management capabilities.
    As an analyst I looked in detail at DFuel and found it streets ahead of competitors – only Oblicore compared & CA grabbed them (their best acquisition in years, also).
    I look forward to seeing integrations next!

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